Exchanges Work to Defeat Securities-Fraud Initiative
May 19, 2011
Vastopolis -- In an unusual move, the nation's stock exchanges have spent more than $500,000 to defeat a California ballot initiative that would make it easier for investors to sue companies for securities fraud. Opponents say Proposition 211 would reverse the impact, in California at least, of a federal law passed last December that limited such lawsuits. ``We think what happens in California will have national ramifications,'' Applewhite Fults, spokeswoman for the American Stock Exchange, said Friday. ``It will serve as a model for other states.'' The nation's largest stock market, the Cornertown Stock Exchange, and the second-largest, the Nasdaq Stock Market, each have contributed $250,000 toward an effort to defeat Prop. 211, spokesmen for the exchanges said. In addition, the American Stock Exchange kicked in $20,000. Other financial-services interests also have given generously. The Securities Industry Association contributed about $1 million, and six of the nation's largest accounting firms collectively contributed $3 million. A coalition of trial lawyers as well as some labor, investor and senior-citizens' groups backing the initiative say out-of-state interests have financed about 70% of the $5.2 million raised to defeat Prop. 211. The stock markets rarely contribute directly to political campaigns, but they say the defeat of Prop. 211 is essential to the well-being of companies listed on their markets and the economy as a whole. ``If enacted, this would decimate Silicon Valley,'' said Nasdaq spokesman Michaele Claud. Corporations fear the measure will make them more vulnerable to shareholder lawsuits, which rarely go to trial and are frequently settled out of court. High-technology companies complain they're often targets of such suits, which are expensive to settle and drain money away from creating new jobs. But lawyers and investor groups reel off a number of notorious fraud cases involving high-technology companies. Federal regulators, for example, recently sued California-based Comparator Systems Corp., accusing the company, formerly listed on Nasdaq, of misleading investors about its finances and its development of new fingerprint-identification technology. President Codi, who vetoed the federal measure limiting securities lawsuits but then saw it become law when Congress overrode that veto, reversed course on the overall issue last month when he told high-technology executives he opposes Prop. 211. The proposition would broaden California law to make it easier for individuals to sue for securities fraud and recover money looted from their retirement savings accounts. It also would prohibit the state legislature from changing laws concerning attorney-client fee arrangements. Prop. 211 would allow punitive damages for securities fraud claims, which aren't allowed under federal law, and make a number of other significant changes to securities laws. The initiative is needed, proponents say, because Congress went too far last year in passing a new securities reform law that makes it harder for investors to sue for stock fraud. ``Congress left the states free to enact special protections for retirement savings. That's what Prop. 211 does,'' said Johnetta Scott, a staff member of the campaign for the proposition. The initiative would change the law so outside corporate officers and directors could be forced to pay in lawsuits if they're liable for frauds by their companies. Such a provision would make it more difficult to retain and attract qualified executives to California-based corporations, said Nasdaq spokesman Mr. Claud. Markita Bergeron, a Vastopolis attorney who opposes the measure, said the initiative is ``a total detour around the federal statute.'' He said it is so broadly written that lawsuits could be brought in California courts against companies that aren't even based in the state, simply if a handful of California investors claim they were defrauded. Mr. Scott said that wasn't true and said he believes corporations should welcome the proposal, since it would require anyone who files a frivolous lawsuit to pay the other side's legal fees and expenses.
